Lease or licence?
This page deals with the distinction between leases and licences in the commercial context; and the termination of licences. The two principal commercial situations in which the distinction between a lease and a licence has been discussed is that of advertising hoardings and car parking spaces. See also the Chattels and fixtures page in relation to beach huts. The final case on this page deals with "shams". The agreement was clearly expressed to be a licence in a number of ways in a number of places, yet the judge held that in reality a tenancy had been granted.
 EWCA Civ 1304.
Agreement to allow a company to erect and maintain 13 large advertising displays at various prominent sites in Manchester owned by the Council. Each advertising display consisted of a substantial superstructure in the shape of a large 'M'. The superstructure was fixed to a rectangular concrete base which was embedded in the ground. The position where the base of each hoarding should go was marked out by agreement on the ground. The company argued that on its true construction the agreement created a tenancy of those areas: that is to say, a tenancy of the land occupied by the concrete bases.
Whether the effect of the contract was to grant the company a tenancy or merely a licence?
As was conceded by counsel for the company:
- "..it is of the essence of a right of exclusive possession, and hence of a tenancy, that the area or areas of land over which the right is said to exist should be capable of precise identification at the date when the right is said to be created. Accordingly if the Agreement, on its true construction, does not sufficiently identify the land in respect of which a tenancy is said to have been created, the case for a tenancy must fail."
In upholding the decision of the first instance judge the CA agreed that "the Sites" mentioned in the agreement were not the areas of the concrete bases of the Ms, but larger undefined areas of land owned by the council. This prevented the agreements from being a tenancy. That was enough to dispose of the appeal.
However, the agreement also contained a term that stated:
- "This Agreement shall constitute a licence in respect of each Site and confers no tenancy on [the company] and possession of each Site is retained by [the Council] subject however to the rights and obligations created by this Agreement".
In relation to that clause Parker, LJ, at the end of his judgment said this:
"28. I venture to make one additional comment, however. I find it surprising and (if I may say so) unedifying that a substantial and reputable commercial organisation like Clear Channel, having (no doubt with full legal assistance) negotiated a contract with the intention expressed in the contract . that the contract should not create a tenancy, should then invite the Court to conclude that it did.
29. In making that comment I intend no criticism whatever of Mr McGhee, who sought valiantly to make bricks without straw. Nor, of course, do I intend to cast any doubt whatever on the principles established in Street v. Mountford. On the other hand the fact remains that this was a contract negotiated between two substantial parties of equal bargaining power and with the benefit of full legal advice. Where the contract so negotiated contains not merely a label but a clause which sets out in unequivocal terms the parties' intention as to its legal effect, I would in any event have taken some persuading that its true effect was directly contrary to that expressed intention. In the event, however, as the judge so clearly demonstrated, the case admits of only one result."
It is important not to read too much into these final comments. They do not mean that inserting a clause stating that the agreement constitutes a licence will be conclusive. That was not the basis of the decision and as Parker LJ makes clear the CA was not seeking to undermine the principles set out in Street v Mountford
In National Car Parks Ltd v Trinity Development Co. (Banbury) Ltd  EWCA Civ 1686;  L&TR 33 (CA) it was held that the principles of Street v Mountford  UKHL 4 apply to business premises. The essential consideration is whether or not the occupier has been granted exclusive possession. However, the fact that the parties have called the document a licence is a factor that can be taken into account when deciding whether or not exclusive possession has been granted. See above in relation to "advertising hoardings".
Pankhania v Hackney LBC  EWHC 2441 (Ch) was another car park case in which the court held that there was a tenancy notwithstanding that it was called a licence. The Street v Mountford principles were discussed.
For a discussion as to whether or not a car parking space can amount to an easement click here.
Agreement expressed to be a Licence but in fact a Tenancy
 EWHC 437
An educational establishment occupied premises under an agreement that was described as a Licence and contained many terms intended to establish that status: “It is plain that, as a matter of wording, the relationship that it creates is that of licensor and licensee. Few opportunities are missed to reinforce the message that the document is, as it says, a Licence Agreement…”. Notwithstanding that wording the judge came to the conclusion that the agreement was in fact a tenancy and not a licence.
The London College of Business (a college of further and higher education) occupied premises in Barking owned by Tareem. The College had been in occupation under a series of agreements, the most recent one dated 22 June 2012, which was described as a licence. The licence contained the following clauses
- “[the licence reserves to Tareem as licensor] an absolute right of entry at all reasonable times for the purposes of exercising such management and control (and without prejudice to the generality of the foregoing) for the purposes of effecting any works to adjoining property in the ownership of the Licensor or for any other purposes deemed necessary by the Licensor”
- “[the licence] merely confers upon the Licensee [the College] a personal privilege to use the premises in accordance with the terms of this Licence and for the avoidance of doubt, it is hereby declared that the Licensee may not part with or share possession or occupation of any part of the Licensed Premises nor assign the benefit of this agreement to any third party, company or partnership”
- “[the licence] constitutes a personal Licence to occupy by the Licensee and shall not be deemed to constitute a tenancy within the meaning of the Landlord and Tenant Act 1954 (as amended) or otherwise”
- “the Licensor shall have the right to terminate this Licence hereby granted by giving no less that (sic) 14 days Notice in writing in the event is in breach of any of the terms of this agreement or if licence fees remain unpaid for a period of 14 days after payment shall have become due, without prejudice to many (sic) right of action which the licensor may have against the Licensee in respect of damages arising from breach of any of the terms hereof”
In 2013 and 2014, a dispute arose between the parties about the amounts payable by the College in respect of its occupation and service charges. Tareem, believing the College to be in arrears, changed the locks and excluded the College from the premises. A subsequent injunction required Tareem to surrender the keys and the College retook occupation, and claimed for wrongful exclusion and damages.
- Was the “licence to occupy” truly a licence?
- Was the re-entry by the licensor/landlord justified?
- If the re-entry was not justified what level of damages would be awarded?
The court concluded that the 2012 agreement conferred a right of exclusive possession on the College and so it took effect as a tenancy, for the following reasons:
- Even though the wording of the agreements was plain, and clearly purported to create a relationship of licensor and licensee, the purpose of the agreement was to provide the College with premises from which it could run its business. By the time the 2012 agreement was signed, the College had fitted out the units it occupied and the court said it was not realistic to suppose that the parties genuinely intended that the College's business could be interrupted by Tareem's right of entry “for the purposes of exercising management and control” (as provided for by the agreement);
- The parties did not have equal bargaining power. When the College first negotiated terms, it was not in a strong financial position such that it could argue about the terms of agreement, and when it came to renewal and all had been going well, the College was relaxed about continuing its terms of occupation;
- The College fell into no exceptional category by which its exclusive occupation could be explained or excused as not constituting a tenancy
As the required 14 days’ notice to terminate had not been given and Tareem’s re-entry was unjustified re-and this meant it was in breach of the implied covenant for quiet enjoyment in the agreement. As a result, damages were awarded to the College in the sum of £25,104 (having originally been sought by the College in the sum of £1m, later reduced to £189,415) in spite of the paucity of evidence as to actual losses.
In coming to the conclusion that the agreement was a tenancy rather than a licence the judge had regard to the modern principles of construction as recently enunciated in the Supreme Court in Arnold v Britton  AC 1619, the principles relating to exclusive possession in Street v Mountford, the need to be wary of shams and the attitude of the courts when having regard to the language by parties to an agreement, particularly in a commercial context where the parties are of equal bargaining power.